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Markets Keep Selling, Netflix (NFLX) Tumbles Hard on Q4 Guide

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We had a feeling, this morning when pre-market indexes once again looked ready for a rebound, that things might turn south at some point as the trading day progressed — and that it has done. In fact, it’s something we’ve seen growing into a near-term trend: a deep sell-off in the final hour of the regular session. The Dow lost -315 points, -0.90%; the Nasdaq was -1.30%, -186 points; the S&P 500 dropped -50 points to -1.11% and the beleaguered small-cap Russell 2000 was down another -1.88% — to a new 52-week LOW.

This all happened after the Dow was +462 points at its intra-day high point today, even with jobless claims data shooting back up closer to 300K than 200K and an Existing Home Sales figure that missed expectations by about 300K units. Even still, heavy selling over the past week of trading — plus mellowing bond yields on the 10-year (1.818%) and 2-year (1.043%) — seemed to suggest a path of lesser resistance higher.

But the plug was pulled and the gains drained out; markets closed at session lows. For the Dow, it was the fifth straight day in the red, and the Nasdaq sinks deeper into correction, now -12% from peaks. The S&P is now at its lowest point in the past three months. On the Russell, analysts will need to plumb the depths to find its next resistance level to the downside — the index is now more than -20% lower than its all-time highs set not 10 weeks ago.

Market participants are still working through their various portfolio valuations after two years of mostly unchecked exuberance. They had been willing to keep their positions relatively high even as the Fed announced changes coming to monetary policy based on heavy and longer-than-expected inflation reads. But now the time has come to pay the piper, it would seem, and flushing out P/E multiples across sectors (not just high-growth tech) looks to be the dominant position to take — and it’s taking a while.

Treasury Secretary and former Fed Chair Janet Yellen appeared on CNBC this afternoon to give her take on what Americans might expect from the domestic economy over the next year or so. She considered it highly likely we’d see inflation above the optimum +2%, though gathering control over that time would make it much more likely that 2% inflation becomes the norm. Over the past decade, this has been one of the goals of Fed policy; now that we may have it in hand, market indexes are freaking out.

There seems to be a particular figure stuck in investors’ craw at the moment, and it’s something current Fed Chair Jay Powell might quell himself during his press conference after next week’s two-day Federal Open Market Committee meeting. That figure is: 4, as in four interest rates taking place over the course of 2022.

Because the Fed is not finished drawing down its asset purchase program via the taper until the end of February, the earliest, this would amount to four quarter-point moves (to +1.00-1.25%) by December of this year. Should he find reason to assure markets this is less likely than currently felt, it may go some ways toward drying up this bloody bearishness.

To add insult to injury today, Netflix (NFLX - Free Report) released Q4 earnings results after today’s closing bell, with a solid beat on the bottom line — earnings of $1.33 per share and swinging to positive yearly growth from an expected 82 cents — and a very modest beat on the top line to $7.71 billion in quarterly revenues. But the reason shares fell -10% immediately upon the release and have nearly doubled their losses since is due to downhearted guidance.

For next quarter, new expectations from the company for earnings of $2.36 per share on $7.9 billion in revenues were both way off the Zacks consensus $3.43 per share and $8.11 billion, respectively. But it’s the growth in net subscription additions, particularly overseas, that has spooked investors: guidance for 2.5 million net new adds next quarter pales in comparison to the consensus 6.9 million.

Analysts had been looking for a Netflix rebound in subscriptions that may simply not be there, with lots of competition now from Amazon Prime, Disney+, HBO, Hulu and others. The Europe, Middle East and Africa (EMEA) region had been Netflix’s fastest-growing region, but appears to have fallen way off, perhaps due to a price hike installed by the company during the quarter. Ahead of the pending conference call, NFLX shares are down nearly -20% in a day for the first time in more than a decade.

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